Foreigner Participation in China’s Social Insurance System Now Mandatory

Sept. 13 – On September 6, 2011, China’s Ministry of Human Resources and Social Security issued the “Interim Measures for Participation in Social Insurance System by Foreigners Employed in China (‘Measures’),” which will come into effect on October 15, 2011.

Foreigners employed in China will participate in five kinds of insurance: basic pension insurance for employees, basic medical insurance for employees, work-related injury insurance, unemployment insurance, and maternity insurance. Social insurance fees will be paid by both employers and foreign employees in accordance with the regulations.

Foreigners employed in China refer to people without Chinese nationality legally employed in China, who have obtained a Permanent Residence Certificate for Foreigners, or employment certificates such as the Employment Permit for Foreigner, the Certificate of Foreign Experts, or the Certificate of Permanent Foreign Correspondent.

The Measures specify that employers who employ foreigners should, within 30 days of applying for their employment permits, undertake their social insurance registration.

Foreigners who are dispatched to work in branches and representative offices registered or incorporated in China after signing employment contracts with employers outside of China are also required to participate in the abovementioned insurance. The Chinese entity should conduct social insurance registration on behalf of the foreigners. Social insurance fees will be paid by both the Chinese entity and the foreigners in accordance with the regulations.

For foreigners who leave China prior to reaching the stipulated age for receiving pension, their social insurance individual account will be retained, and when they return to work in China, their contribution years will continue to accumulate. If the foreigner applies to terminate social insurance, he/she can receive the social insurance savings amount in his/her individual account in one lump sum. Upon a foreigner’s death, the sum remaining in his/her social insurance individual account can be inherited in accordance with the law.

Foreigners receiving social insurance payments on a monthly basis outside of China should annually submit to the social insurance agency from which he/she receives payments a certification proving that he/she is still alive issued by the Chinese embassy/consulate, or one that is authenticated by the relevant agencies in their country of domicile, and certified by the Chinese embassy or consulate. Foreigners who are legally residing in China can show such proof by going to the social insurance agency in person.

Where disputes arise between the foreigner and his/her employer or Chinese entity regarding social insurance, they can apply for mediation, arbitration or file litigation. Where the employer or Chinese entity infringes upon his/her social insurance rights and interests, the foreigner can request the administrative department of social insurance or social insurance fee collection agencies to handle in accordance with the law.

For foreign employees from nations which have entered into bilateral or multilateral social insurance treaties with China, their participation in social insurance shall be handled in accordance with such treaties.

Social insurance agencies will issue social insurance numbers and cards to foreigners.

Departments handling foreigners’ employment permits are required to report information related to foreigners’ employment in China to social insurance agencies.

Employers and Chinese entities that fail to register social insurance or pay social insurance fees on behalf of foreign employees will be penalized according to the Social Insurance Law and other relevant regulations.

The Social Insurance Law provides that employers who fail to conduct social insurance registration will be ordered to rectify within a certain time period. Those who fail to do so will be imposed a penalty amounting to more than one time and less than three times the social insurance fee amount, and the person directly in charge will be imposed a penalty of more than RMB500 and less than RMB3,000.

For employers who fail to pay full social insurance fees in a timely manner, they will be ordered to pay in full within a certain time limit, and a 0.05 percent late payment fee will be imposed on a daily basis. For those that fail to pay after the stipulated date, the relevant administrative department will impose a penalty of more than one times and less than three times the delinquent amount.

Furthermore, the Social Insurance Law provides that foreigners working in China are to participate in social insurance, but did not specify whether Hong Kong, Macau and Taiwan residents working in Mainland China are included. While the draft Measures provided that the abovementioned citizens are required to participate in social insurance, this article was deleted from the final promulgated version. Therefore the issue of whether or not Hong Kong, Macau and Taiwan citizens are required to participate in the PRC social insurance system remains unclear and awaits further clarification.

Comments from Adam Livermore, Dezan Shira & Associates
The release of the “Interim Measures for Participation in Social Insurance System by Foreigners Employed in China” by the Chinese government on September 6 has clarified some of the outstanding points relating to the participation of foreigners in the country’s social insurance system. Other points remain vague and I would like to point out the main ones below as well as comment on the overall consequences of this new regulation.

Overall, the prognosis is not good for foreigners living and working in China. On one hand, the companies that employ foreigners will be required to make contributions on their behalf, therefore employing foreign employees will become more expensive. The extra expense could be as high as 37 percent on top of the salary paid to the employee (more about this below). On the other hand, foreign employees will have to make contributions. Although in the case of pension, the regulations specify that it will be possible to claim a lump sum once the employee leaves China, it will be less easy for foreigners to take full advantage of the medical or unemployment benefits in China.

There had been some speculation that foreigners would not need to contribute towards certain social insurances, or would be able to opt-out, however it seems the conclusion reached by the Chinese government is that this would be too difficult to implement in practice. The only situation in which foreigners will be able to avoid making contributions is where they meet the requirements specified in bilateral or multilateral agreements, of which there are currently only two (with Germany and Korea). Even these agreements only allow citizens of these countries to opt out under certain circumstances.

There is still a lot that remains unclear. Immediate practical concerns that come to mind are:

Pension. How to reclaim the lump sum? Will 100 percent be reclaimable? Will it be taxed? If so, how? How to organize payment to a relative in the event of death of the foreigner?

Medical insurance. Will it be possible to use the accumulated medical insurance at international sections of domestic hospitals or at international clinics?

Maternity insurance. Foreign women are not restricted to having one baby. Will they be able to take advantage of the policy multiple times or just with their first-born?

Unemployment insurance. Foreigners are generally not allowed to reside in China if they lose their means of employment, so how will they take advantage of this insurance?

The main concern for employers will be the additional cost. While most cities currently implement a “ceiling” for contributions which limits the amount payable each month by the employer to a few thousand RMB, this is by no means universal and Dalian has removed this cap already. If this trend continues throughout the country, it may be that companies are required to make contributions of up to 37 percent on the entire monthly salary paid to their foreign employees.

As a final point, this regulation has been issued with an implementation date of October 15, 2011. However it is frequently the case that local social security bureaus do not issue directives locally until a later date. Therefore, it is still uncertain as to when the policy will be rolled-out across the country, and there may be significant regional disparities. We will make regular updates on this site when new information is released.

Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in China, Hong Kong, Vietnam and India. For further information and clarification on China’s new Social Insurance Law, please email info@dezshira.com.

This article was originally published on the Dezan Shira & Associates online business resources library. To view the original article, and other regulatory updates, please click here.

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5 Responses

We’ve had several enquiries asking if the payment of social welfare in China extends to expatriates aged over 50, if they have also been making contributions back home.

Unfortunately, in our opinion, it almost certainly does. The final interpretation will lie with the local social insurance bureau, but in principle the system should work as it does for Chinese employees. For Chinese, if they start contributing above a certain age they have the opportunity to make “retroactive contributions” so that it will be possible to complete the entire 15 years of contribution. However, for a foreigner, this may not be possible.

Foreigners have the advantage of being able to redeem their pension contributions after they leave China, therefore the social insurance bureau may require such individuals to keep contributing until retirement age or when they leave China. In any case, we don’t see any reason why the company should not have to make their contribution, as this portion does NOT accrue to the individual and instead goes into the public pension pool – the age of the foreign employee is irrelevant to this. One rather disturbing aspect of the contributions being asked to be made by foreign employees (and their employers) is that a large percentage of that expense goes to China’s social “pool” and is not earmarked for the individual to draw down. In short, expatriate contributions are currently structured in a manner that helps fund Chinese pensions nationally – but not their own.

As a cavaet however, there are many details that the government still has to clarify relating to the participation of foreigners in the Chinese social insurance system – and this is one of them. It may be subject to reinterpretation.

Please contact us at tax@dezshira.com if readers have other clarification matters or require assistance with getting into compliance, both corporate and individual, on this issue.
Thanks – Chris

Thanks Brian, Vaughan; the amounts payable vary to some extent dependent upon location as parts of the social welfare payments (its broken down into different components) are fixed locally rather than nationally. So it depends. We’d be happy to answer any specific cases however, please email us at tax@dezshira.com
Thanks – Chris